Delta expanding cargo business

patrickdc9

Well-known member
Joined
Aug 20, 2007
Posts
48
Total Time
5000
Monday, January 5, 2009

Delta expands cargo service

Amid soaring fuel prices and slumping passenger demand, airline discovers
fresh opportunities.

Nathan Hurst / The Detroit News

When the passenger market dries up, airlines try and get their other revenue
streams going.

Dogged by soaring jet fuel costs this summer and severely slumping passenger
demand in the wake of the deepening national recession, air carriers
including Delta Air Lines Inc., Michigan's largest, are looking for ways to
boost their bottom lines with something other than selling tickets.
Many already tapped out new ways to charge passengers for things such as
checked baggage, snacks and redeeming frequent-flier miles.
But with passenger counts falling as consumers pull back their discretionary
spending, Delta, for example, is redoubling its focus on other parts of its
business, such as its worldwide cargo network and rapidly-growing TechOps
mechanical services division.

"This is an absolutely critical component of our business, especially as we
grow our international network," said Neel Shah, Delta's vice president of
cargo. "We're not following the network; we're getting involved in driving
where this company is going."

That's absolutely critical for an airline trying to increase its business
while at the same time shrinking its passenger operations to meet lower
passenger demand.

After Delta and Northwest finish cutting passenger seating capacity this
year -- following cuts in 2008 -- the combined company, which merged in
October, will fly 20 percent fewer seats than two years ago.

But in the midst of slumping demand, Delta executives see opportunity.

In the third quarter of 2008, Delta had improved its year-over-year cargo
revenue by 35 percent, to $162 million.

Shah said he expects Delta's cargo growth to be tempered by the worldwide
economic slowdown; the International Air Transport Association said cargo
revenue was down worldwide in November by 13.5 percent compared with a year
earlier. But Shah said the company's growing network will continue to open
opportunities around the globe.

This year, Delta is revving up for new routes to Africa, Asia and Australia,
all with big cargo-carrying opportunities. The company will be the first
passenger and cargo carrier to offer services to every continent except
Antarctica.

That network growth helps the company's bottom line, but also helps it
maintain service on routes that are seeing big passenger drop-offs this
year.

"If you look at the revenue profiles on flights like Detroit to London or
Detroit to Amsterdam, the cargo revenue provides a lot of the margin on that
trip," Shah said.

Delta also improved revenue taken in through new passenger fees and from its
TechOps maintenance unit -- which handles technical work on everything from
engines to paint jobs for other airlines -- by 23 percent for the quarter,
to $579 million.

An important cushion

Bill Swelbar, an industry analyst and research engineer for the Airline Data
Project at the Massachusetts Institute of Technology in Cambridge, Mass.,
said ancillary revenues provide important cushions for airlines in times of
difficult-to-manage passenger revenues, if managed well.
"In this economic environment, it's hard to get excited about cargo revenue
in the short-term," Swelbar said. "Though there are a lot of opportunities
there, particularly for when the economy bounces back."

You can reach Nathan Hurst at (313) 222-2293 or nhurst@detnews.com.
 
Top